In Pursuit of a New American Industrialism

Demand for Downtown Housing Explodes: No Word on Fate of Unnecessary Subsidies

Great news. There is a huge demand for high end condos downtown. Lucas Piatt is ecstatic:

The Golden Triangle's newest condominium building, 151 First Side, has commitments on 43 of 80 units, with prices ranging from $250,000 to $500,000. Piatt Place at the former Lazarus-Macy's building has lined up buyers on 10 of 65 condos, with prices running from $335,400 to $634,500, in the four months the sales office has been open.

It's a whole lot of housing to add to the 1,290 rental and condo units available in the Golden Triangle. But several studies over the past five years have indicated the demand is there to match it.

They suggest the Downtown market can absorb 100 to 250 units a year, at rental levels below $1.60 a square foot (the current level is $1.34) and at sales prices of $200 a square foot, translating into a monthly rent of $1,742 for a 1,300-square-foot apartment or $260,000 for a condo of the same size.

And a recent Carnegie Mellon University study found that demand for Downtown housing among young professionals far exceeds the supply. For that category of buyer or renter, it estimated there is a need for at least 162 more units, up to as many as 2,061.

So tell me again: Why are we subsidizing these projects? And ultimately, what's happening with that money? Are the developers keeping it to increase their profits? Or are they passing the savings along to people who can afford $600,000 condos? In either case, is that a good use of scarce resources? In a city that is basically in receivership?

If, as Piatt says, the market "exceeds our expectations," why don't the developers give the subsidies back? Why don't they have to? Remember, they got the subsidies because they said the market could not sustain the projects. Well, they were wrong about that, apparently. So, you know. Give the money back.

Seriously. Let's say my family applies for a house from the city, or from Habitat for Humanity. And on the way to rent a U-Haul on moving day I buy a lottery ticket and win $30 million. Would it be right for me to move into the house anyway? Or to accept it, sell it and keep the profits?

I don't think so.

So the news about the housing market is great across the board. Great news for people who want to live downtown and now can. Great news for people like the Piatts who think downtown residential is important to their larger plans for the city.

And great news for the city and the state. Because it turns out that the millions they pumped into these projects wasn't necessary.

Now go get it back.

Or, you know... give them more money. Any chance of that happening? Oh yes...

Perhaps the biggest unfulfilled need Downtown is for more moderately priced housing. Ms. Burk said studies have found a very high demand for such housing Downtown. The CMU study found that young professionals are willing to pay $900 to $1,100 a month to live Downtown.

As a result, a group of business, civic, political and foundation officials have begun meeting to try to find ways to entice developers to build more moderately priced "workforce" housing. ...

"The difficulty in most cities is that it is too expensive to develop market rate housing to make it affordable for young people or teachers or government workers without some kind of city subsidies or assistance," said John McIlwain, senior fellow for housing at the Washington D.C.-based Urban Land Institute.

Without incentives, developers tend to gravitate toward building more expensive units Downtown because it is the only way they can make money.

Assuming that some important corner is turning in Pittsburgh's history ( which is still a bit up in the air and dependent on future government moves )

Here is my pick for one of the most significant moments in Pittsburgh's history ----
http://www.post-gazette.com/pg/05325/610035.stm

Historic office building slated to get makeover
Monday, November 21, 2005

By Mark Belko, Pittsburgh Post-Gazette

In her long career, journalist, author and fashion designer Holly Brubach has lived in Paris, Milan and Manhattan.
But when Ms. Brubach decided to give up her New York City loft for new digs, her search led to a familiar but hardly exotic destination -- her hometown of Pittsburgh.

Born and raised in Shaler, Ms. Brubach, former style editor for The New York Times, is buying the nine-story Granite Building, Downtown at Sixth Avenue and Wood Street, next to the Duquesne Club.

She is planning to convert the structure, built in 1889-90 as the German National Bank to serve immigrants, into luxury condominiums with retail space on the ground floor. Ms. Brubach will retain two floors for her own personal residence and offer the rest for sale, with the potential for as many as five condominiums. There also will be a top floor apartment for short-term rentals.

Dude, when the style editor of the NY Times pulls up and moves to Pittsburgh, that is a slight indicator that your city is cute.
My friends in NY, all noticed that one.

Another quote from that article. ( by the way, to my knowledge the deal was closed and she owns the building )

During her reconnaissance missions to Pittsburgh to scout locations, Ms. Brubach brought a number of friends from New York with her, and "every single one of them was so impressed with the place," she said.

A couple of them are even thinking about following in her footsteps

I can't help feeling that some of the recent press about Pittsburgh in the Times, relates to Holly. I am sure that at least a few of her former co-workers had to see Pittsburgh.

By the way, to my knowledge she lives in lower Manhattan and no doubt was struck by the similarities. Pittsburgh is kind of like NY, run by Homer Simpson.

uh...i've seen Holly B. in person...someone's been photoshopping her PR photos.

also, where's the mass exodus of new yorkers? Holly B is returning home, which isn't an uncommon occurence. i'll be impressed when new yorkers start showing up by the train and planeloard to relocate. sure, the city gives them a nice warm fuzzy feeling. but i don't see the golden triangle becoming the new ellis island for big apple refugees.

and how in the hell does a style editor make enough money to buy an entire downtown building? we're all in the wrong jobs — or wrong real estate market.

and yes, the deal is done on the granite building. she had an unveiling party at the duquesne club this past week. you should have been there. the crab cakes and macaroons are delicious.

there is an interesting question implied in all of that. If subsidies were not necessary to induce downtown residential investment.. then why was there so little downtown residential investment going on until recently. Not discounting the various lofts, in sheer numbers, downtown housing units were continuing a long term decline until a fairly decent shift not too long ago.

that is just a question. My partial answer is that you also really have to account for the demise of the split tax which had the impact of making downtown development far more expensive than it was before. Some amount of tax breaks/incentives downtown does not even offset the higher taxes that must be paid downtown under a single tax scheme.

and the Granite Building itself cost $925K.. what fraction is that of what a low rent brownstone costs in Manhattan these days.

Part of my answer is that the city bought up a huge percentage of the properties and failed to do anything with them. And the constant threat of eminent domain served as a disincentive to come in and do anything. Especially since it was clear--and remains clear--that the city has no interest in people freelancing development.

The obvious source of Holly's money is that she made a killing on her loft in NY and now she is looking to do it again. This is a common situation among lucky and smart New Yorkers.

As a long time NY insider, she has memories of the time, when most people were not interested in NY Real Estate. Since she is rich now, I would take it a little seriously that she knows what she is doing and perhaps that you don't.

"also, where's the mass exodus of new yorkers? Holly B is returning home, which isn't an uncommon occurence. i'll be impressed when new yorkers start showing up by the train and planeloard to relocate. sure, the city gives them a nice warm fuzzy feeling. but i don't see the golden triangle becoming the new ellis island for big apple refugees."

I think that two of the assumptions you raise here are worth examining.

1) is that it would take " New Yorkers" by the train and plane load to change Pittsburgh. I think that some comparison between the relative size of the cities is helpfull. If NY is short of housing for about 1 million people ( which is what is projected ) and even a small percent decide to come here it will have a huge impact. Given the fact that some of those people are from here one can expect a higher potential number of Boomerangs. Also, NY is hardly the only expensive city with a housing shortage in the country.

2) is the assumtion that there is nothing particularly significant about a person like Holly's return. How many people at that level of success really do. My own personal experience, to be blunt is that the city has had a bit of success drawing back poor and middle class schlubs like me. But this is a bit more like Andy Warhol anouncing that he is moving back at the hieght of his career. What is significant is the level of investment she made. I mean this isn't someone just renting a place so she can write a book, she is putting a lot of her money on the line here.

Let's be Honest here, Did Andy come back? Gene Kelly? Lena Horne? Steven Bochco? Joe Namath? Joe Montana? Historically, the people with a lot of options and success have not moved back to Pittsburgh.

I can't say that i am in favor of that, but The New York Times is still a total bible for a lot of people, so yes, my impression is that she has a pretty big amount of weight and a lot of connections.

I can't say that i had ever really heard of her, but when her name came up among people in NY, it just seemed like everybody knew who she was and thought it was pretty significant. You may never have heard of Roberta Smith or Micheal Kimmelman, but if they decided to quit NY today and move to Pittsburgh, believe me a lot of people in NY would notice.

I kind of want to apologize to people for suggesting that successfull people don't move to Pittsburgh. I think what makes someone like Holly important is that she was/is a player in an area that Pittsburgh is not nationally known for. ( Fashion/style/media etc... ) I am sure that Pittsburgh attracts a lot of world class doctors, medical researchers and specialists in some of the hard sciences.

The other big thing is that she didn't move in because she got a cushy prof job at CMU or a major hospital position ( and then got a big house in the suburbs. ) She has chosen to move here and much more than that, to plunk what is likely a big part of her personal net worth into a building in Downtown Pittsburgh! ( a place that Sean, continues to imply that no one would want to live in ) Also, if you notice she is planning to break up the building and sell condos, which means that she thinks that there are other people like her around.

Yes, I think that Holly and a lot of other people whose main claim to wealth is owning a million dollar closet in a place like NY. have to be pretty worried about a bubble. Pittsburgh, however as a region is not considered an over priced market. In fact, I think it's showing up on the lists pumped by the "how to get rich by owning rental property guys"

The median-priced U.S. single-family detached home — half cost more, half less — fell 1.7% in August to $225,700, compared with a year ago. The decline is no doubt jarring to sellers, who haven't seen prices fall nationally since April 1995. The price drop was also sharp, the second-steepest in 38 years.

Sales of existing homes, meantime, fell for the fifth month in a row.

If you read the PG article Sam references, go toward the bottom, the "Incentives offered" part. Renter are getting a FREE month?! The article poo-poos this are competition. Yea. Competition in a slow market, a renters market. You don't pass up charging $2.4K rent for the month out of the kindness of your heart.

"They suggest the Downtown market can absorb 100 to 250 units a year, at rental levels below $1.60 a square foot (the current level is $1.34) and at sales prices of $200 a square foot, translating into a monthly rent of $1,742 for a 1,300-square-foot apartment or $260,000 for a condo of the same size"

OK. $260K at 5.75% for 30 years is about $1500/month. No condo fee, no taxes, nothing. Someone can rent it out for $1742 and make a profit? Or at least sense as an investment? Never mind waving your hands about a big downpayment. That money has to earn too.

Never signed up for any of the snake oil late night real estate schemes, so I am not famialiar with all the rationatizations about how this is making money.

I agree that some local markets in Pittsburgh are pretty out of wack and no, at this point, I have no idea why someone would rent in Pittsburgh's downtown for a lot of money.For the record, I consider Shadyside to be totaly overpriced, but that reinforces my claim that tiny levels of shopping culture and convenience here create massive jumps in housing values. Shadyside seems to be going through an exended contiuous orgasm since the Whole Foods arrived.

Downtown at this point is an investor's market and a speculation on it's improvement-- Condo, all the way.

As far as the late night schemes go, i think that they are sort of how to be slumlord tutorials. College towns usually are great places to make a lot of money on high rentals.

Actually, my point is rent was almost cheaper. If you assume like $5K per year taxes, and $150 to $200 per month in condo fee. That brings the monthly Nut up to $1500+$5k/12+$200 or about $2100. I guess you can deduct the interest even if it is an investment.

SO what IS the grocery store that is going to feed all the che-che dahn-tahn condo(m) dwellers?

These are going to start out as some of the most expensive properties in the area. I sure hope they are not planning on go-go 90's real estate appreciation. Well, at least go-go 90's real estate appreciation that the rest of the country got.

This brings one back to whether you believe in and want to live in a city. If you like museums, views, theaters etc, in Pittsburgh and are looking for a place where you have decent shot at actual walking to work, this is the place.

The Downtown is one of the most atractive locations in one of the more atractive cities in America. I for one, think that there is value there.

A downtown Condo is speculative bet that Pittsburgh will not always be run by Homer Simpson.